Student Loan Defaulters Refuse To Pay

Another card being pulled from the house of cards that is the economic system:

The letters keep coming, as do the emails. They head, unopened, straight into Jason Osborne’s trash and deleted folder. The U.S. government desperately wants Mr. Osborne and his wife to start repaying their combined $46,500 in federal student debt. But they are among the more than seven million Americans in default on their loans, many of them effectively in a standoff with the government. These borrowers have gone at least a year without making a payment—ignoring hundreds of phone calls, emails, text messages and letters from federally hired debt collectors. Borrowers in long-term default represent about 16% of the roughly 43 million Americans with student debt, now totaling $1.3 trillion across the U.S., and their numbers have continued to climb despite the expanding labor market.

Their failure to repay—in many cases due to low wages or unemployment, in other cases due to outright protest at what borrowers see as an unfair system—threatens to leave taxpayers on the hook for $125 billion, the total amount they owe. The Osbornes say they are the victims of a for-profit school that made false promises and a predatory lender—the government. “Do you think I’m going to give them one penny I’m making to pay back the loan for a job I’m never going to hold?” said Mr. Osborne, 45, who studied to be a health-care worker but can’t find a job as one. The rising number of borrowers in default weakens the economy as underwater homeowners did after the housing crash: by damaged credit, an inability to spend and save for the future, and a lack of resources to move to better jobs.

So when the system collapses, jobs evaporate, and people go broke, student loans will be $1.3 trillion dollars more of debt that will suddenly evaporate overnight from the system, never to be collected again. It will, of course be added to the sovereign debt, credit card debt, real estate loans, business loans, corporate credit, and so on. And that doesn’t even factor in the removal of EBT subsidies, housing subsidies, other poverty-pimping graft, as well as the evaporation of simple personal savings accounts, and stock market value, which will all dry up the system from the tangible supply side.

The entire system is predicated on the idea that resources will always be free, and debt can always be paid someday in the future. Right now, if the possibility of being paid tomorrow were shown to be ridiculous, borrowing would stop and the system would grind to a halt.

But for that to happen, the Apocalypse would need to begin. As a result, this is much more likely to become just one more weight tied around the neck of a drowning economy, rather than a trigger.

On the bright side, the K-selection will be epic. It will be scores of years before we collapse back into r-selection anything like what we see today.